Question

If your goal is to have $10,000 in a bank account in 12 years at an interest rate of 6%, how much money must you invest per year?

A. Fill in each of the following (one of the answers is unknown -- write ?)

PV=

FV=

CF=

T=

R=

B. Draw a time line?

C. Write the appropriate formula

Answer 1

(A)

Present Value(PV)	$ 5,963.63
Future Value(FV)	$ 12,000
Cash Flow(CF)	$ 1,431
Time (T)	12 year
Rate of Interest(R)	6%

Note: Present value = Future value / (1+r)ⁿ = 12,000/(1.06)¹² = $ 5,963.63

Note: Cash flow per year = Future value / PVIFA_{(6%, 12 years)} = 12,000 / 8.384 = $ 1,431

(B) Drawing a time line.We have,

Year	Cash Flow(R=6%)	Future Value
1	$ 1,431
2	$ 1,431
3	$ 1,431
4	$ 1,431
5	$ 1,431
6	$ 1,431
7	$ 1,431
8	$ 1,431
9	$ 1,431
10	$ 1,431
11	$ 1,431
12	$ 1,431	$ 12,000

(c)

The Formula of Cash Flow per year = Cash flow per year = Future value / PVIFA_{(r%, n years)}